Interest Rates ON HOLD Again

The Reserve Bank of Australia has once again decided to keep official interest rates on hold at 1.5%.

REA Group Chief Economist Nerida Conisbee says the decision is motivated by a range of factors, including movement on inflation.

“It’s not surprising that the RBA held rates today.

“While there was a marked reversal in the GDP figures in the December quarter and inflation edged slightly higher in March, the RBA is continuing with a wait and see approach,” Consibee says.

However, she warns home owners that pressure from Australian banking regulators may see rate rises come directly from the banks.

“While the RBA has kept rates on hold, this is no guarantee that banks will not continue to increase rates as their wholesale costs increase and further pressure is applied by the Australian Prudential Regulatory Authority.

“In April we continued to see many banks continue to raise rates and this is likely to be a key trend for the remainder of 2017.

“For home owners, it is now more important to watch the movement of banks, rather than the RBA,” Conisbee says.

Money Editor Sally Tindall says the RBA’s decision followed the release of a number of key economic indicators which “really cancelled each other out”.

“While the unemployment figures continued to be disquieting, and the dollar remains high, today’s result confirmed that the RBA was not willing to waste one of their few remaining cuts on these results.

“The RBA will find it hard to entertain the idea of a further rate cut while house prices continue their meteoric rise in the Sydney and Melbourne markets. Not to mention the fact that, at a record low of 1.5 per cent, there’s not much more cutting left to do,” Tindall says.

Tindall says we may have seen rates in Australia finally bottom out.

“While the RBA has kept a steady hand this month, banks have not. APRA’s recent announcement that they must curtail interest-only lending to owner-occupiers has led to yet another round of rate hikes.

“Fixed rates are also starting to tick up again, which is yet another signal that we might have reached the bottom of the interest rate market.”

Today’s RBA announcement comes after a decision last month by the US Federal Reserve to keep its interest rates on hold after data showed the US economy grew at its slowest pace in three years in the first quarter of this year.

The impact of the US market has already been felt in Australia this year, with NAB becoming the first major lender to increase its home loan rates after the US Federal Reserve raised its benchmark interest rate by 25 basis points in March.

NAB increased its increase its standard variable rate to 5.32% and its investment home loan rate to 5.8% in late March.